OSFI Outlines Expectations on LIBOR Transition
In a letter to the federally regulated financial institutions, OSFI outlined expectations on transition from the London Inter-bank Offered Rate (LIBOR). OSFI expects the institutions to prioritize system and model updates to accommodate risk-free rates by the end of 2021 and to fully prepare to transact in risk-free rates that are available in jurisdictions or markets in which these institutions operate by the end of 2021. OSFI also expects the institutions to have an adequate contingency plan to respond to any issues that may emerge at cessation.
For most LIBOR currencies, the federally regulated financial institutions should have already stopped entering into new transactions using LIBOR as a reference rate. For USD LIBOR settings, which will be published until June 30, 2023, OSFI expects institutions to stop using LIBOR as a reference rate as soon as possible and to not enter into transactions using LIBOR as a reference rate after December 31, 2021. Any transaction entered into before December 31, 2021 using the USD LIBOR as a reference rate should include robust fallback language, which includes a clearly defined alternative reference rate after the discontinuation of LIBOR. For institutions with material exposure to LIBOR, OSFI will consider LIBOR transition efforts and project delivery in supervisory risk assessments and take supervisory actions, where needed, in case of significant deficiencies in transition efforts or processes.
Related Link: OSFI Letter
Keywords: Americas, Canada, Banking, Securities, LIBOR, Interest Rate Benchmarks, Benchmark Reforms, Risk Free Rates, OSFI
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